2016 SBA Lending Outlook

BA lenders indicate they continue to be optimistic about business prospects for the 2016 fiscal year, which starts today, and although confident about the outcomes, they are less sure about the elements that will make loan growth certain. A solid 100% of those responding to the SBA Lending Outlook Survey expect that their funded-loan dollar volume of SBA loans will increase in the year ahead, a figure well ahead of the 83% response for FY 2015 (and 89% in FY 2014). And 69% of these same lenders believe they will improve the application-to-approval ratio in the coming year, which is better than the 60% and 49% respectively over the past two years.

The Small Business Finance Institute has gathered this third annual survey to gauge the outlook for SBA lending among SBA managers, business developers, underwriters, service providers and other participants who play a vital role in turning SBA applications into capital. The survey asked respondents to grade their 2015 business lending performance and then project the direction of their 2016 results.

Other survey results:

56% indicated they were satisfied with program support and promotion by the SBA (vs. 63% in 2014; 25% were not satisfied, and 6% did not know).

69% indicated they expect the U.S. economy to expand during 2016 (vs. 76% in 2015; 25% did not expect growth and 6% did not know).

73% indicated their company would be hiring more people to facilitate small business loans in 2016 (vs. 50% in 2015; 20% were not expecting to hire and 7% did not know).

Opinions about the most significant barrier to funding more loans in 2016 were divided differently this year. More lenders were concerned about tight credit, as the depressed borrower demands seem to be fading. Complaints about SBA policies ticked upward, probably in reaction to the gradual tightening of the SOP over the past three years.

44% cited Restrictive Lending Policies (vs. 27% in 2015);

13% cited Depressed Borrower Demand (vs. 21% in 2015);

19% cited SBA Procedures (vs. 14% in 2015);

12% said All of the Above (vs. 19%+ in 2015);

12% said None of the Above (vs. 19% in 2015).

“Underwriting is all over the board,” said ReadyCap’s Bill Luckenbill. He heads up their lending outreach to military veterans out of the Phoenix AZ office. Although a relatively new name to SBA lending, ReadyCap bought legacy SBA lender CIT’s license and portfolio in 2014. Luckinbill told me that lenders in his market were making loans he knows he’d never get approved, often relying more heavily on cash flow, without the complete backing of collateral. “But our folks are doing some good deals that I don’t think some other lenders would fund.”

And how will SBA lenders score more business in 2016? Most said through additional marketing, more face-to-face meetings, hard work and better coordination internally to generate more leads. And a few are holding out hope that the ‘credit box’ will relax a little bit to let more capital get out the bank.

In summary, lenders are expressing confidence that their business book will grow, although a healthy percentage of them are skeptical that the economy will grow, and as many don’t expect it to be any easier to get a loan approved. Tough underwriting is the greatest barrier to funding, but still three out of four lenders plan to hire more people to facilitate additional business.